National Budget 2006

National Budget 2006

These pages contain information in English about Norway's National Budget for 2006, presented to the Storting as Report no. 1 (2005-2006) on 14 October 2005. The National Budget presents the Government's program for the implementation of economic policy and projections for the Norwegian Economy.

Royal Norwegian Ministry of Finance

Per-Kristian Foss
Minister of Finance
October 2005

Taxes – Main Features of the 2006 Proposal

Fiscal Budget 2006 - Continued Strong Economic Growth

The Establishment of the Government Pension Fund

Organisation of the Government Pension Fund and its relationship to economic policy

Taxes – Main Features of the 2006 Proposal

Taxes – Main Features of the 2006 Proposal

In March 2004, the Government proposed a comprehensive overhaul of the tax system, see Report No. 29 (2003-2004) to the Storting (the Parliament), “Om skattereform” (“On Tax Reform”), referred to as the Tax Report below) and Recommendation No. 232 (2003-2004) to the Storting. The reform was implemented in Proposition No. 1 (2004–2005) to the Storting and Proposal No. 92 (2004–2005) to the Odelsting. The Tax Report proposed that the reform be phased in over the 2005, 2006 and 2007 budget years.

The overall objective of the tax reform is to enhance the efficiency of the tax system by increasing tax neutrality and reducing the overall tax burden. An efficient tax system is important in order to maximise economic performance. Taxation of businesses and capital should ensure that economically profitable investments are carried out. This requires, amongst other things, predictability, stability and a high degree of equality in the tax treatment of different industries and investments. A large labour force and sufficient access to well-educated manpower are important for achieving growth and restructuring within industry and commerce. The challenges associated with mounting future pension obligations and age-related health and care costs also mean that manpower resources must be used efficiently. Lower marginal tax rates on work may increase labour supply.

The Government is committed to the use of environmental taxes. Correctly used, taxes on environmentally harmful activities contribute to improved resource allocation by limiting polluting activities in a cost-effective manner. Moreover, the revenue raised through environmental taxes may be used to reduce other distorting direct and indirect taxes.

The Government’s proposal implies new net reductions in direct and indirect taxes for 2006 in the region of NOK 2.8 billion on a cash basis. Overall net reductions in direct and indirect taxes amount to almost NOK 4.2 billion on a cash basis for 2006, including the effects on the 2006 budget from appropriations for 2005. On an accrual basis, reductions in direct and indirect taxes for 2006 amount to almost NOK 6.7 billion.

Tax reform follow-up

The tax reform reflects a renewed commitment to the principles underpinning the 1992 reform, with low rates, broad tax bases, and a high degree of neutrality across industries and investments. The reform implies that there is no taxation of dividends and capital gains between companies (the exemption method), and that only returns in excess of the risk-free rate of interest are taxed at more than 28 percent at the personal level (due to a rate of return allowance). The adopted rules also provide a high degree of neutrality between various forms of financing, and tax treatment is equal irrespective of whether a business is organised as a sole proprietorship, a partnership or a limited company. The tax reform ensures that the Norwegian taxation of income from shares is in compliance with the EEA Agreement.

In order for the tax system to be regarded as fair, all labour income should be taxed equally, irrespective of whether it is earned as an employee, an active owner through his or her own limited company or as a self-employed person. The Government’s proposal implies that marginal tax rates on income from shares and on labour income will be about the same. This is what makes it possible to abolish the split model (the previous system for taxation of active owners and self-employed).

The tax reform will result in lower marginal tax rates for most employees. Employees on low and medium incomes are likely to increase their labour supply when the marginal tax rate is reduced, and the reform may consequently strengthen the labour supply among these groups. The labour supply of employees with relatively high incomes is less flexible in the short run, but lower marginal tax rates on high incomes will reduce incentives to tax evasion and avoidance.

Small and medium-sized businesses often depend on capital from domestic investors. High taxes on savings may therefore restrict access to capital for such companies, thus preventing economically profitable projects from being implemented. As the reform implies a higher tax rate on income from shares, the Government proposes to reduce the wealth tax. This is necessary in order to prevent an increase in the overall taxation of capital among these groups, which would mean to go in the opposite direction of other countries. The Government has signalled that the revenue from the wealth tax should be halved during the course of 2006 and 2007, and that the long-term goal is full abolition.

In Norway, indirect taxes account for a relatively high share of government revenue. The Skauge Committee pointed out that this is a sound approach, and proposed a certain increase in consumption taxes in order to finance reductions in income taxes, see the NOU 2003: 9 Green Paper, “Skatteutvalget – Forslag til endringer i skattesystemet” (“The Tax Committee – Proposed Changes to the Tax System”). The Committee favoured such an emphasis on indirect taxation because taxes on consumption do not influence savings decisions, and because part of the tax burden is levied on other incomes than wages. The implementation of the tax reform in the budgets for 2005 and 2006 entails a certain shift in the tax burden from work to consumption, as a result of, inter alia, the increase in the general rate of Value Added Tax as from 1 January 2005 and further proposed expansions of Value Added Tax in 2006. The budget proposal for 2006 reflects the Government’s continued effort to streamline and simplify excise duties.

Follow-up of the tax reform is at the core of the Government’s budget proposal for 2006:

– The surtax is reduced from 12 percent to 7 percent in tax bracket 1 and from 15.5 percent to 12 percent in tax bracket 2. This is necessary in order to avoid large differences in the treatment of labour and capital income when the split model is replaced by a tax system with a rate of return allowance for personal shareholders and self-employed from 2006. At present rates, there would still be strong incentives to have labour income taxed as capital income. The Government proposes reductions in the marginal tax rates of groups which do not pay surtax as well, thus making it more profitable to work. The proposed reduction in the surtax and increase in the basic allowance in 2006 mean that approximately 1 million people will get reduced marginal tax rates. About 290,000 fewer people will pay surtax in 2006 than in 2001.

– The wealth tax needs to be reduced in order to avoid an increase in the overall taxation of capital when the taxation of shareholder income is increased. The Government proposes to reduce revenues from the wealth tax by about 25 pct. (about NOK 1.9 billion), and signals a further reduction in 2007.

– The Government also wishes to continue its effort to streamline and simplify the tax system as recommended by the Skauge Committee. The proposal for 2006 includes simplified and stricter rules for the taxation of PCs and telephones paid for by the employer.

The Government’s budget proposal for 2006 implies that the main elements of the tax reform are in line with the plan outlined in the Tax Report. What still remains are further reductions in the wealth tax, whilst also continuing the effort to simplify the tax system.

Changes to the taxation of individuals and businesses

A key objective of the tax reform is to ensure that all actual labour incomes are taxed in an equal manner. Replacing the split model by taxation with a rate of return allowance for shareholders and self-employed, requires a further reduction in the rates of surtax of labour income in 2006. The Government proposes to reduce the surtax by 5 percentage points in bracket 1 and 3.5 percentage points in bracket 2, in accordance with the reform plan. The overall surtax reduction is estimated to about NOK 5.6 billion.

The Government also proposes the abolition of the supplementary employer’s National Insurance contribution on wage income in excess of 16 times the basic amount (G) in the National Insurance system (about NOK 971,000). This is required in order to reduce the marginal tax rate on high wage income, thereby curtailing tax planning incentives.

The Government’s proposed reduction in the surtax and abolition of the supplementary employer’s National Insurance contribution on high wage income implies that the marginal tax rate on wages (inclusive of employer’s National Insurance contribution) is reduced to 49.9 percent in surtax bracket 1 and 54.3 percent in bracket 2. Consequently, for most taxpayers it will make little difference whether returns are extracted in the form of dividends, with a marginal tax rate of about 48.2 percent, or in the form of wages. In comparison, the highest marginal tax rate on wages (inclusive of employer’s National Insurance contribution) was 56.1 percent after the implementation of the tax reform in 1992, see Chart 1.

The surtax reductions also need to be considered in the context of the introduction of a tax system with a rate of return allowance for personal shareholders and self-employed and the proposed expansion of tax bases, e.g. the stricter tax rules for PCs and telephones paid for by the employer. Most taxpayers who will be affected by these stricter rules currently pay surtax.

The Government also proposes tax reductions for taxpayers with medium and low wage income. It is proposed that the basic allowance for wage income be increased by increasing the rate from 31 percent to 33.5 percent and the upper limit from NOK 57,400 to NOK 63,700. The increased basic allowance is estimated to entail a tax reduction of just over NOK 2.5 billion. The Government’s proposal means that overall tax reductions as a result of expanding the basic allowance applicable to wage incomes will be just over NOK 9 billion for the period 2002–2006.

Taxation with a rate of return allowance for individual shareholders, partners and sole proprietorships

Replacing the split model by a new tax system with a rate of return allowance has been approved with effect from 2006. This tax system implies that different types of legal entities are taxed on the basis of the same main principle. Any profits distributed, net of company tax, which exceed the rate of return allowance (which reflects risk-free returns) will be taxed at the rate of 28 percent on the part of individual shareholders/partners. This means that the marginal tax rate on distributions will be about 48.2 percent.

Sole proprietorships shall continue to be taxed on an accrued basis. Debts will be subject to an allowance equal to the actual interest of such debts. Returns in excess of the rate of return allowance will be taxed as personal income, i.e. these will be subject to employee’s National Insurance contributions and, if applicable, surtax.

The net revenue from introducing a tax system with a rate of return allowance for individual shareholders is estimated at NOK 2.5 billion. Amended tax rules for sole proprietorships and individuals, in their capacity of partners of partnerships, are estimated to increase tax revenues by about NOK 1.3 billion.

Reduced wealth tax

The Government has previously announced its intention to halve the revenue from wealth tax by 2007. It is proposed that half of this reduction is implemented in 2006. At the same time, the wealth tax is simplified through the abolition of both bracket 2 and class 2 of the wealth tax. Married couples with taxable wealth will benefit the most from the Government’s proposed changes to the wealth tax. This is because couples will now be granted a double basic allowance (abolition of class 2), which is considerably more than the joint basic allowance granted them at present. The proposal will reduce revenues from the wealth tax by about NOK 1.9 billion.

Simplification and retrenchment

An efficient tax system is characterised by having a broad tax base that ensures that all income, including benefits in kind, is taxed. Broad tax bases make it possible to maintain low tax rates, which will reduce the efficiency costs of taxation. Besides, tax bases that reflect actual economic circumstances are prerequisites for ensuring that individuals with equal income are subject to equal tax treatment, and that tax rate progressivity results in the intended redistribution of income.

The proposal includes base broadening initiatives, which increase tax revenues by about NOK 1.3 billion. The proposals include increased taxation of telephone benefits and PCs paid for by employers. In addition, the Government again proposes to abolish the tax exemption for free diet for employees on the continental shelf and for seamen’s wage supplements, etc.

Changes to Value Added Tax

The halving of the rate of Value Added Tax (VAT) on food as of 1 July 2001 does not appear to have been fully passed on to consumers. Reduction of the rate from 12 to 11 percent as from 1 January 2005 has not resulted in demonstrably lower consumer prices on food. The Government proposes to increase the VAT rate on food from 11 percent to 13 percent. The Government also proposes to increase the lowest VAT rate from 7 percent to 8 percent, whilst also bringing accommodation services into the VAT system at a rate of 8 percent. The proposal entails considerable administrative simplifications, and resolves new demarcation problems resulting from a judgment recently passed by the Supreme Court (the «Porthuset Judgment»). In addition, it is proposed that VAT be introduced on the use of mobile telephones abroad by subscribers domiciled in Norway.

In total, these changes will increase revenue by about NOK 1.4 billion. The Government also proposes a net budgeting scheme for VAT for the central government administration. The proposal implies that VAT will no longer be an incentive for governmental offices to produce certain services by government employees instead of purchasing such services from private suppliers. This change will not affect revenue or expenditure.

Changes to environmental taxes

The Government proposes to increase the rates of CO2 and SO2 tax for domestic sea transportation of goods, the supply fleet and national aviation to the same level as for mineral oil. This will increase revenue by about NOK 230 million. Furthermore, it is proposed that the annual tax on motor vehicles with a permitted gross weight of between 7.5 and 12 tons be differentiated according to environmental standards. The main challenge in terms of Norway’s obligations under the Gothenburg Protocol is to fulfil the obligation to reduce NOx emissions. The Ministry of Finance will therefore explore cost-effective policy instruments to reduce NOx emissions, in cooperation with affected Ministries.

Other changes to direct and indirect taxes

The Government proposes to:

– increase the rate of depreciation applicable to machinery, etc. to 25 percent. This proposal is estimated to reduce revenue by NOK 1,650 million.

– double the level of the brackets for paying inheritance tax to NOK 500,000 in bracket 1 and NOK 1.1 million in bracket 2, as well as to introduce a grace period for the payment of inheritance tax on family-held businesses. The proposals are estimated to result in a tax reduction of about NOK 690 million.

– increase the annual maximum for savings under the BSU scheme (tax credits for home savings for people under the age of 34 years). The proposal is estimated to result in a tax reduction of NOK 70 million.

– limit the tax on non-alcoholic beverages to beverages with added sugar. The change entails a tax reduction of about NOK 220 million.

– abolish the tax on chocolate and sweets as from 1 December 2006. The expected tax reduction is estimated at NOK 95 million for 2006.

– increase the maximum allowance for gifts to voluntary organisations

to NOK 15,000 and make gifts for political parties qualify for such allowance. The proposal will result in a tax reduction in the region of NOK 25 million.

– abolish the base tax on disposable beverage packaging, and expand the base to which the environmental tax on beverage packaging applies. In total, this will result in a tax reduction of about NOK 75 million accrued for 2006.

– amend the tax rules applicable to the pre-emptive acquisition of land under a ground lease and to the voluntary protection of forests. The proposals represent a tax reduction for 2006 in the region of NOK 10 million.

– adapt the tax rules applicable to shipowners to the new EEA regulations. This implies that rig companies will no longer be encompassed by the special scheme for the taxation of shipowners. The proposal is estimated to increase the revenue by NOK 100 million.

– Introduce tax deductibility for individuals from other EEA countries on an equal footing with individuals from Norway, and curtail the special standard allowance. The proposal represents a retrenchment in the region of NOK 90 million.

The transitional arrangements for the regionally differentiated employer’s National Insurance contribution implies that the contribution rate will be increased from 2005 to 2006 by 1.9 percentage points in zone 3, to 12.1 percent, and by 2.2 percentage points in zone 4, to 11.7 percent.

Reference is also made to the discussion in Proposition No. 1 (2005–2006) to the Odelsting, “Skatte- og avgiftsopplegget 2006 – Lovendringer” (“Direct and Indirect Taxes – Legislative Amendments Proposed for 2006”).

Effects on revenue of the proposed changes to direct and indirect taxes

Table 1 shows the estimated effects on revenue of the Government’s proposed changes to direct and indirect taxes for 2006.

The effects on revenue have been calculated on the basis of a reference system. The reference system for direct taxes is, somewhat simplified, the 2005-rules, but with all income limits, etc., adjusted to 2006-levels, assuming wage growth of 3½ percent. A taxpayer with an annual wage growth of 3.5 percent will then end up with the same average tax rate under the reference system for 2006 as in 2005. In the reference system for indirect taxes, all volume-based taxes have been adjusted by an estimated price increase from 2005 to 2006 of 1¾ percent. Consequently, the indirect tax burden under the reference system is unchanged in real terms from 2005 to 2006.

Table 1 Estimated effects on proceeds from the direct and indirect taxes proposed for 2006. The estimates have been calculated relative to the reference system for 2006. Negative figures reflect tax reductions. NOK million

 

Accrued

Booked

1. Follow-up of tax reform

-5 890

-3 735

The taxation of individuals and businesses

-10 975

-8 130

Reduce the surtax

-5 590

-4 470

Increase the basic allowance

-2 520

-2 020

Abolish the supplementary employer’s National Insurance
contribution on wage income in excess of 16 times the basic
amount (G) of the National Insurance system

-880

0

Reduce the wealth tax

-1 930

-1 540

Repeal limitation in the rules on loss deductions

-55

0

Introduce deductibility for shareholder costs with effect from
1 January 2005

0

-100

Simplification and retrenchment

1 325

1 135

Amend tax rules for employers’ payment of telecommunications
expenses

940

755

Retrench the home PC scheme

160

200

Repeal the tax exemption for free diet for employees on the
continental shelf and for seamen’s wage supplements1

225

180

Previous tax reform decisions relating to 2006

3 760

3 260

Introduce tax system with rate of return allowance for income from shares, abolish split model for active owners, etc.2

2 500

2 000

Amend tax rules applicable to self-employed persons

1 250

1 250

Introduce withholding tax with rate of return allowance for individual shareholders within the EEA

10

10

2. Environmental taxes

233

213

Repeal reduced tax rate on CO2 and SO2

230

210

Environmentally differentiated annual tax on vehicles between
7.5 and 12 tons

3

3

3. Beverages

-295

-270

Expand the tax base for the environmental tax on beverage
packaging

295

270

Abolish the base tax on disposable beverage packaging

-370

-340

Tax on non-alcoholic beverages limited to beverages with added
sugar

-220

-200

4. Changes to Value Added Tax (VAT)

1 416

1 177

Increase the VAT rate on foodstuffs from 11 to 3 percent

1 250

1 040

Increase the low rate under the VAT system from 7 to 8 percent

220

185

Bring overnight accommodation services within the scope of the
VAT system

-200

-170

Introduce VAT on telecommunications services
abroad

150

125

Exempt dancing events with live music from VAT

-4

-3

5. Other changes

-2 120

-205

Amend the tax rules applicable to the pre-emptive acquisition of
land under a ground lease, etc.

-10

-25

Double the amounts which trigger payment of inheritance tax, and
introduce a grace period for the payment of inheritance tax on
family-held businesses

-690

0

Increase the maximum allowance for gifts to voluntary
organisations to NOK 15 000 and make gifts for political parties
qualify for such allowance

-25

-20

Amend the tax rules applicable to shipowners in line with the new EEA regulations

100

0

Increase the annual maximum amount for savings under the BSU
scheme (tax credits for home savings for people under the age of
34 years)

-70

-55

Change standard allowance, etc., for individuals from other EEA
countries

90

70

Nominal continuation including interaction effects, etc.

230

185

Abolish the chocolate tax as from 1 December 2006

-95

0

Increase the rate of depreciation applicable to machinery to
25 percent

-1 650

-360

6. Previous decisions

-30

-1 370

Abolish withholding tax for individual shareholders within the EEA

0

-10

Appropriations in connection with the National Budget 2005

0

-1 196

Appropriations in connection with the Revised National Budget
2005

-30

-164

New reductions in direct and indirect taxes for 2006

-6 656

-2 820

Overall effect on proceeds in 2006

-6 686

-4 190

1 When taking into account the increased expenditure on the net wage scheme, estimated at about NOK 40 million cash for 2006, the net effect on cash revenue from these retrenchments will be about NOK 140 million in 2006.

2 The estimate is net of reductions in surtax and employee’s National Insurance contributions from active owners of NOK 1 billion accrued in connection with the abolition of the split model.

Source: Ministry of Finance.

Tables 2 and 3 offer an overview of important direct and indirect tax rates and thresholds included in the Government’s proposal relating to direct and indirect taxes for 2006. The tables also show direct and indirect tax rates and thresholds for 2005, as well as percentage changes from 2005 to 2006. The general allowances and thresholds are rounded off in relation to wage and price adjustments from 2005 to 2006. The adjusted amounts may therefore deviate somewhat from the estimated wage and price growth of 3½ percent and 1¾ percent, cf. Tables 2 and 3.

Table 2 Direct tax rates and thresholds, etc. for 2005 and proposals for 2006

 

2005-rules

Proposal 2006

Percentage change

Employee’s National Insurance contribution

 

 

 

Wage income

7.8 percent

7.8 percent

Income from self-employment within agriculture, forestry and fisheries

7.8 percent

7.8 percent

Other income from self-employment

10.7 percent

10.7 percent

Pension income, etc

3.0 percent

3.0 percent

Lower threshold for the payment of employee’s National Insurance contribution

NOK 29 600

NOK 29 600

-

Supplementary rate

25.0 percent

25.0 percent

 

 

 

 

Surtax 1

 

 

 

Bracket 1

 

 

 

Rate

12.0 percent

7.0 percent

-5 percentage points

Lower threshold, class 1

NOK 381 000

NOK 400 000

5.0

Lower threshold, class 2

NOK 393 700

NOK 400 000

1.6

Bracket 2

 

 

 

Rate

15.5 percent

12.0 percent

-3.5 percentage points

Lower threshold, class 1

NOK 800 000

NOK 800 000

Lower threshold, class 2

NOK 800 000

NOK 800 000

 

 

 

 

Tax on ordinary income

 

 

 

Individuals

28.0 percent

28.0 percent

Individuals in Finnmark and Northern Troms

24.5 percent

24.5 percent

Taxpayers which pay in arrears (businesses)

28.0 percent

28.0 percent

 

 

 

 

Personal allowance

 

 

 

Class 1

NOK 34 200

NOK 35 400

3.5

Class 2

NOK 68 400

NOK 70 800

3.5

 

 

 

 

Basic allowance applicable to wage income

 

 

 

Rate

31.0 percent

33.5 percent

2.5 percentage points

Upper threshold 2

NOK 57 400

NOK 63 700

11.0

Lower threshold

NOK 4 000

NOK 4 000

 

 

 

 

Basic allowance applicable to pension income

 

 

 

Rate

24.0 percent

24.0 percent

Upper threshold 2

NOK 49 400

NOK 51 100

3.4

Lower threshold

NOK 4 000

NOK 4 000

 

 

 

 

Special wage income allowance3

NOK 31 800

NOK 31 800

 

 

 

 

Special allowance relating to old age and disability, etc.

NOK 19 368

NOK 19 368

 

 

 

 

The tax limitation rule for retired persons etc.

 

 

 

Upper rate

55.0 percent

55.0 percent.

Tax-free net income

 

 

 

Single

NOK 92 100

NOK 95 300

3.5

Married couple

NOK 151 000

NOK 156 300

3.5

Net wealth surcharge

 

 

 

Rate

2.0 percent

2.0 percent

Limit

NOK 200 000

NOK 200 000

 

 

 

 

Special allowance applicable to tax payers in Finnmark and Northern Troms

 

 

 

Class 1

NOK 15 000

NOK 15 000

Class 2

NOK 30 000

NOK 30 000

 

 

 

 

Fishermen’s and seamen’s allowance

 

 

 

Rate

30.0 percent

30.0 percent

Upper treshold

NOK 80 000

NOK 80 000

 

 

 

 

Special allowance applicable to income from self-employment within agriculture, etc.

 

 

 

Income-independent allowance

NOK 36 000

NOK 36 000

Allowance rate above income-independent allowance

19.0 percent.

19.0 percent

Maximum overall allowance

NOK 61 500

NOK 61 500

 

 

 

 

Maximum allowance for premium paid to individual pension savings schemes (IPA)

 

NOK 40 000

 

NOK 40 000

 

 

 

 

Maximum allowance for labour union fees etc

NOK 1 800

NOK 1 800

 

 

 

 

Allowance for travel between home and workplace

 

 

 

Rate per km

NOK 1.40

NOK 1.40

Lower allowance threshold

NOK 12 800

NOK 12 800

 

 

 

 

Maximum allowance for gifts to voluntary organisations etc

NOK 12 000

NOK 15 000

25.0

 

 

 

 

Special allowance for high expenses related to sickness

 

 

 

Lower threshold

NOK 9180

NOK 9180

Upper threshold

unlimited

unlimited

 

 

 

 

Parent allowance for documented costs associated with
childcare

 

 

 

Upper threshold

 

 

 

One child

NOK 25 000

NOK 25 000

Additional amount for each subsequent child

NOK 5 000

NOK 5 000

 

 

 

 

Tax credits for home savings for people under the age of 34
years (BSU)

 

 

 

Rate of tax credit

20 percent

20 percent

Maximum annual saving amount

NOK 15 000

NOK 20 000

33.3

Maximum savings amount under the scheme

NOK 100 000

NOK 100 000

 

 

 

 

 

Employer’s National Insurance contribution 4

 

 

 

Zones 1 and 2

14.1 percent

14.1 percent

Zone 3

10.2 percent

12.1 percent

1.9 percentage points

Zone 4

9.5 percent

11.7 percent

2.2 percentage points

Zone 5

0 percent

0 percent

 

Supplementary employer’s National Insurance contribution on income in excess of 16 times the basic amount (G) the National Insurance system

12.5 percent

0 percent

-12.5 percentage points


The wealth tax

2005 rules

 

Proposal 20065

Change in percent

 

Limits NOK

Rate

 

Limits NOK

Rate

 

Local government

0 – 151 000

0,0 percent

 

0 – 190 000

0.0 percent

 

151 000 –

0,7 percent

 

190000 –

0.7 percent

25.8

Central government

 

 

 

 

 

 

Class 1

0 – 151 000

0.0 percent

 

0 – 190 000

0.0 percent

25.8

 

151 000 – 540 000

0.2 percent

 

190000 –

0.2 percent

 

540 000 –

0.4 percent

 

to be abolished

 

 

Class 2

0 – 181 000

0.0 percent

 

to be abolished

 

 

181 000 – 580 000

0.2 percent

 

to be abolished

 

 

580 000 –

0.4 percent

 

to be abolished

 

1 The rate for Northern Troms and Finnmark is 9.5 percent in bracket 1 for 2005. It is proposed that the rate in bracket 1 be reduced to 5 percent in 2006. Bracket 2 applies to Northern Troms and Finnmark as well.
2 The sum of the basic allowance applicable to wage and pension income shall not exceed the upper threshold applicable to the basic allowance for wage income, i.e. NOK 63 700 in 2006.
3 Taxpayer with wage income benefits from the higher of the sum of the basic allowance applicable to wage and pension income and the special allowance applicable to labour income.
4 Anyone who is 62 years or older is subject to a reduced rate of 4 percentage points. Zones 2–4 shall continue to pay employer’s National Insurance contributions at the rates which applied in 2003 (10.6, 6.4 and 5.1 percent, respectively) until the difference between what the firm actually paid by way of employer’s National Insurance contribution (pursuant to the 2003 rules) and what the firm would have paid by way of employer’s National Insurance contribution at a rate of 14.1 percent equals the lower contribution threshold. The lower contribution threshold for 2006 is NOK per firm.
5 It is proposed for 2006 that married couples be granted a double basic allowance (class 2 to be abolished).

Source: Ministry of Finance.

Table 3 Indirect tax rates for 2005 and proposed rates for 2006

Category of indirect tax

Current rate

Proposal 2006

Percentage change

VAT, percent of sales value1

 

 

 

Ordinary rate

25

25

0

Reduced rate

11

13

2

Low rate

7

8

1

 

 

 

Alcoholic beverages

 

 

 

Spirit-based beverages in excess of 0.7 percent alcohol by volume

 

 

 

NOK/percent alcohol and litre

5.54

5.64

1.8

Other alcoholic beverages from 4.7 to 22 percent alcohol by volume

 

 

 

NOK/percent alcohol and litre

3.61

3.67

1.7

 

 

 

 

Other alcoholic beverages up to 4.7 percent alcohol by volume, NOK/litre

 

 

 

a) 0.0-0.7 percent alcohol by volume

1.58

1.61

1.9

b) 0.7-2.7 percent alcohol by volume

2.47

2.51

1.6

c) 2.7-3.7 percent alcohol by volume

9.35

9.51

1.7

d) 3.7-4.7 percent alcohol by volume

16.18

16.46

1.7

 

 

 

 

Tobacco

 

 

 

Cigars, NOK/100 grams

181

184

1.7

Cigarettes, NOK/100 units

181

184

1.7

Smoking tobacco, NOK/100 grams

181

184

1.7

Snuff, NOK/100 grams

58

59

1.7

Chewing tobacco, NOK/100 grams

58

59

1.7

Cigarette paper, NOK/100 units

2.76

2.81

1.8

 

 

 

 

Motor vehicle registration tax

 

 

 

Vehicle category a2

 

 

 

Weight tax, NOK/kg

 

 

 

Initial 1150 kg

34.75

35.36

1.8

Next 250 kg

69.50

70.72

1.8

Next 100 kg

139.00

141.43

1.7

Remainder

161.66

164.49

1.8

Piston displacement tax, NOK/cm3

 

 

 

Initial 1200 cm3

10.26

10.44

1.8

Next 600 cm3

26.86

27.33

1.7

Next 400 cm3

63.18

64.29

1.8

Remainder

78.93

80.31

1.7

Motor effect tax, NOK/kW

 

 

 

Initial 65 kW

134.22

136.57

1.8

Next 25 kW

489.54

498.11

1.8

Next 40 kW

979.38

996.52

1.8

Remainder

1 657.36

1 686.36

1.7

Vehicles, category b,3 percent of category a

20

20

0,0

Vehicles, category c,4 percent of category a

13

13

0,0

Vehicles, category d,5 percent of category a

55

55

0,0

Vehicles, category e,6 percent of value

36

36

0,0

Vehicles, category f,7 unit tax

9 228

9 389

1,7

Piston displacement tax, NOK/cm3

 

 

 

Initial 125 cm3

0

0

0.0

Next 775 cm3

31.70

32.25

1.7

Remainder

69.50

70.72

1.8

Motor effect tax, NOK/kW

 

 

 

Initial 11 kW

0

0

0.0

Remainder

410.65

417.84

1.8

Vehicles, category g8

 

 

 

Weight tax, NOK/kg

 

 

 

Initial 100 kg

13.01

13.24

1.8

Next 100 kg

26.01

26.47

1.8

Remainder

52.01

52.92

1.7

Piston displacement tax, NOK/cm3

 

 

 

Initial 200 cm3

2.72

2.77

1.8

Next 200 cm3

5.42

5.51

1.7

Remainder

10.83

11.02

1.8

Motor effect tax, NOK/kW

 

 

 

Initial 20 kW

34.68

35.29

1.8

Next 20 kW

69.34

70.55

1.7

Remainder

138.69

141.12

1.8

Vehicles, category h,9 percent of category a

40

40

0.0

Vehicles, category i,10 NOK

3 038

3 091

1.7

Vehicles category j,11 percent of category a

35

35

0.0

 

 

 

 

Annual tax on motor vehicles, NOK/year

 

 

 

Ordinary rate

2 815

2 865

1.8

Motorcycles

1 585

1 615

1.9

Caravans

940

955

1.6

Vehicles with a total weight exceeding 3.5 tons

1 785

1 815

1.7

Tractors, mopeds, etc

360/180

365/185

1.4/2.8

 

 

 

 

Annual weight-based tax, NOK/year

varies

varies

1.8

 

 

 

 

Re-registration tax

varies

varies

1.8

 

 

 

 

Petrol, NOK/litre

 

 

 

Sulphur-free12

4.03

4.10

1.7

Low-sulphur13

4.07

4.14

1.7

 

 

 

 

Auto diesel, NOK/litre

 

 

 

Sulphur-free14

2.92

2.97

1.7

Low-sulphur15

2.97

3.02

1.7

 

 

 

 

Marine engines, NOK/HP

135.00

137.50

1.9

 

 

 

 

Electricity consumption, øre/kWh

 

 

 

General rate

9.88

10.05

1.7

Reduced rate

0.45

0.45

0.0

Lubricating oil, NOK/litre

1.62

1.65

1.9

 

 

 

 

Tax on mineral products

 

 

 

Base-tax on heating oil, NOK/litre

0.414

0.421

1.7

CO2-tax, ordinary rate

 

 

 

Petroleum activities, NOK/litre or Sm3

0.78

0.79

1.3

Mineral oil, NOK/litre

0.52

0.53

1.9

Petrol, NOK/litre

0.78

0.79

1.3

CO2-tax, reduced rate16

 

 

 

Mineral oil, NOK/litre

0.31

-

71.0

Petrol, NOK/litre

0.28

-

182.1

Sulphur tax, ordinary rate, NOK/litre

0.07

0.07

0.0

Sulphur tax, reduced rate, NOK/litre17

0.03

-

133.3

 

 

 

 

Waste tax

 

 

 

Landfills for waste disposal, NOK/ton

 

 

 

Landfills – high environmental standard

409

416

1.7

Landfills – low environmental standard

533

542

1.7

Incineration plants, NOK/emission unit

varies

varies

1.8

CO2-tax on incinerated waste, NOK/ton

40.57

41.28

1.8

 

 

 

 

Tax on health- and environmentally damaging chemicals

 

 

 

Trichloreten, NOK/kg

55.71

56.67

1.7

Tetrachloreten, NOK/kg

55.71

56.67

1.7

 

 

 

 

Tax on greenhouse gases HFC and PFC

 

 

 

NOK/ton CO2-equivalents

187.27

190.55

1.8

 

 

 

 

Chocolate and sweets, NOK/kg

15.79

16.07

1.8

From 1 December 2006

 

-

-100.0

 

 

 

 

Non-alcoholic beverages

 

 

 

Finished product, NOK/litre

1.58

1.61

1.9

Concentrate (syrup), NOK/litre

9.64

9.81

1.8

Carbonate, NOK/kg

64.00

-

-100.0

 

 

 

 

Tax on beverage packaging, NOK/unit

 

 

 

Environmental tax

 

 

 

a) Glass and metals

4.46

4.54

1.8

b) Plastics

2.69

2.74

1.9

c) Carton

1.11

1.13

1.8

Base-tax on disposable beverage packaging

0.91

-

-100.0

 

 

 

Sugar, NOK/kg

6.12

6.23

1.8

 

 

 

 

Stamp duty, percent of sales value

2.5

2.5

0.0

1 Change in Value Added Tax is stated in percentage points.

2 Group a: Passenger cars, delivery vans class 1 and buses less than 6 meters in length, with up to 17 seats.

3 Group b: Delivery vans class 2.

4 Group c: Campervans.

5 Group d: Dual-purpose cars with total weight not exceeding 7500 kg.

6 Group e: Weasels.

7 Group f: Motorcycles.

8 Group g: Snowmobiles (snow scooters).

9 Group h: Taxi and transportation of disabled people.

10 Group i: Vintage cars.

11 Group j: Buses less than 6 meters in length, with up to 17 seats, of which at least 10 are forward-facing.

12 Petrol with a sulphur content of 10 ppm or less.

13 Petrol with a sulphur content between 10 ppm an 50 ppm.

14 Auto diesel with a sulphur content of 10 ppm or less.

15 Auto diesel with a sulphur content between 10 ppm an 50 ppm.

16 Reduced rate to be abolished. Tax to be payable at the ordinary rate.

17 Reduced rate to be abolished. Tax to be payable at the ordinary rate.

Source: Ministry of Finance.

Allocation of public sector revenue from direct and indirect taxes

Table 4 offers an overall overview of the main categories of direct and indirect taxes, and the part of the public sector to which the revenue from each of the main categories accrue. Overall revenue from direct and indirect taxes is estimated at about NOK 830 billion for 2005, of which about 86 percent accrues to central government, 11 percent to local government and 2 percent to regional government.

The main part of the tax revenue accruing to local and regional government is in the form of income and wealth tax paid by taxpayers who are individuals.

About 33 percent of central government revenue originates from value added tax, excise duties and customs duties. About 21 percent originates from taxpayers who are individuals, whilst about 18 percent is in the form of income and wealth tax from those who pay their taxes in arrears, together with employer’s National Insurance contributions from Mainland Norway. About 26 percent of 2005 government revenue is represented by direct and indirect taxes from the petroleum sector. Other direct and indirect taxes account for about 2 percent.

Table 4 Accrued direct and indirect taxes allocated by tax creditors1. 2005 estimates. Billion NOK

 

Central government

Local government tax fund

Local government

Regional government

In total

Individual taxpayers

149.7

-

82.8

17.6

250.0

Tax on ordinary income

68.5

-

77.3

17.6

163.4

Surtax

13.8

-

-

-

13.8

Employee’s National Insurance
contribution

65.0

-

-

-

65.0

Wealth tax

2.4

-

5.5

-

7.8

Businesses (which pay their taxes in arrears)

34.5

6.2

1.3

0.2

42.2

Income tax2

34.3

6.2

1.3

0.2

42.0

Wealth tax

0.3

-

-

-

0.3

Property tax

-

-

3.7

-

3.7

Employer’s National Insurance contribution

92.7

-

-

-

92.7

Indirect taxes

234.4

-

-

-

234.4

Value added tax

155.7

-

-

-

155.7

Excise duties and customs duties

78.7

-

-

-

78.7

Petroleum

184.8

-

-

-

184.8

Tax on income

180.3

-

-

-

180.3

Tax on extraction, ect

4.5

-

-

-

4.5

Other direct and indirect taxes

17.2

-

0.7

-

17.8

Social security and pension premiums, other central government and social security accounts3

14.2

-

-

-

14.2

Tax on dividends for foreign shareholders

1.5

-

-

-

1.5

Other direct and indirect taxes4

1.5

-

0.7

-

2.1

Total direct and indirect taxes

713.3

6.2

88.5

17.8

825.7

Of which direct taxes

478.9

6.2

88.5

17.8

591.3

1 Overall figures are in accordance with the definitions applied in the National Accounts, but the classification into tax types deviates somewhat therefrom.
2 Including tax on shipowning companies encompassed by the taxation scheme for shipowning companies and power stations.
3 Including the Norwegian Public Service Pension Fund.
4 Including certain revenue items classified as tax revenue in the National Accounts, but not entered as tax revenue in the Fiscal Budget.
Source: Ministry of Finance.